Message from CFP Board

If you are a parent, you probably are familiar with the concept of “well baby” visits with the pediatrician as an important part of your child’s medical care. Similar might be the regular cleanings and check-ups we get at the dentist: we keep these appointments in order to avoid a more expensive emergency visit down the road.

Unfortunately, the notion of wellness or preventative care has not caught on in the financial planning field. A recent survey by Certified Financial Planner Board of Standards confirms what I have observed repeatedly in my 20 years as a CFP^® professional: namely, the individuals most likely to seek out the services of a financial planner are those in crisis, such as a divorce, a death, a loss of a job, or a significant loss of wealth like many suffered in the investment markets at the end of 2008. Less anguished events, which are nonetheless experienced as significant, often stressful transitions – such as marriage, the birth of a child, or the launch of a business – are also indicators to many Americans that it is time “to get thee to a planner.”

As CFP^® professionals, we see ourselves as in a helping profession, and what better time to really help our clients than when they are experiencing the pressure points of life? I have always loved meeting new clients, and have learned that it is imperative to have a box of Kleenex at all these initial meetings. But it is not, of course, my prospective client’s distress that I enjoy, but the very high probability that I can lead them out of my conference room feeling so much better or more confident than they entered.

But there is a downside to this aspect of financial advice as a form of crisis management. The problem is that many people do not or cannot think clearly when they are in trouble; in short, they have little access to rational, considered judgment. Think of what happens to most people when their car breaks down on a dark night or on a lonely road. For all but the most well-prepared AAA members (or my father), they are often at the mercy of whatever help is offered, or the first repair service that comes up on the iPhone. There’s no time to comparison shop, or check credentials, or to see if Joe Tows has ever been the subject of a consumer complaint. Just get me out of here, and I’ll ask questions later.

Unfortunately, there are unscrupulous advisors who thrive on this inability of consumers to be discriminating when under duress. In a survey the CFP Board conducted among its certificants, asking them if they had ever met with a client who had been “abused” at the hands of another advisor, there were several examples of individuals, newly bereaved or traumatized by natural disasters, who were approached by advisors pressuring them to sign documents, set up accounts, and/or buy products that they did not understand. Their emotional vulnerability made them victims.

In an ideal world, we would always be prepared for the big unexpected events of our lives, and have our tools and trustworthy advisors at the ready so we don’t have to think clearly when we are not capable of doing so. But getting the American public to line up their financial advisors when they are young, financially healthy, or not yet trammeled by life’s cares and obligations may be as intractable a problem as getting these same individuals to opt into health insurance. To my knowledge, there is no mandatory requirement that everyone get financial planning.

The likelihood that financial planning is more often initiated when life’s journey is bumpy, rather than smooth, is probably here to stay. This reality makes it even more important that the consumer have awareness of a “brand” of financial planning that is reliable, competent and ethical. This brand – which is distinguished by the CFP^® marks and is carried by those financial planning professionals who have met the stringent requirements of the CFP Board – is one the consumer can reach for automatically but also confidently, when his or her need for advice seems so much more urgent than the need to make the right choice of advisor.

-Eleanor Blayney, CFP^® Consumer Advocate, CFP Board

Top News Stories

Tax Refund Loan Alternatives
Bankrate.com (01/14/10) Bell, Kay

Florida Southern College associate accounting professor John Stancil says refund anticipation loans (RALs) are not necessary now that electronic filing and direct deposit allow filers speedy access to their refunds, and he attributes the survival of RALs to simple impatience. Some taxpayers have access to free e-filing through a partnership between the Internal Revenue Service and tax preparers and software companies, and the Free File Fillable Tax Form option allows taxpayers of all incomes to input tax data into online forms and file them at no cost; the latter option involves only blank online forms, not tax preparation software. Additionally, taxpayers who e-file and opt to have their refunds deposited directly into their bank accounts will receive their money in 10 to 14 days. Stancil notes that one major RAL provider hits borrowers with a 264 percent annual percentage rate. "All year long, taxpayers have made the government an interest-free loan, and now they are paying 264 percent to get their own money back a few days quicker," he says. Some RAL providers are giving borrowers a prepaid debit card to access their funds, which means they are hit with tax preparation fees, account fees, and finance charges on the loan plus fees tied to the card for ATM withdrawals and balance inquiries, among other costs--all to get their return just a few days sooner.


Actuaries: Planning Tools Leave Holes
National Underwriter (Life and Health Financial Services Edition) (01/05/10) Bell, Allison

A new study released by the Society of Actuaries suggests that free, online retirement calculators may be inaccurate. The study examined five free calculators, a fee-based consumer system, and six systems designed for financial services professionals. Study authors John Turner and Hazel Witte noted that, "Most of the free, Web-based programs could do a better job of limiting the range of inputs on rates of return." They said many programs and their users may rely on "overly optimistic assumptions on rates of return." Just two of the free consumer software programs allowed users to enter rates of return, inflation rates, or expected life expectancy, the authors observed, and none allowed the inclusion of expected salary increases or tax rates. The majority of professional programs let users enter those parameters, but some failed to address the size of the estate a client might want to leave, Turner and Witte said. They also noted that the consumer programs provided little or no advice about prioritizing funds to draw down, modifying investment strategies during retirement, or using life/health/long-term care insurance. Although the professional programs were found to offer better advice, they only rarely examined the purchase of annuities and only sometimes discussed retirement postponement, according to Turner and Witte.

Personal Finance News

Ten Vital Financial Tips to Take You Through 2010
Creston News Advertiser (IA) (01/20/10)

The period between New Year's Day and Tax Day provides an opportunity for people to improve their financial standing. Jonathan Pond at Savings Bank Life Insurance Co. advises people to be content with what they have and live simply rather than focus on conspicuous consumption. He also urges the elimination of old debt and avoiding new debt, balancing safety and risk when investing, and relying on guaranteed investments like deferred annuities and other insurance products. He observes that if the mortgage on a home can be paid prior to retirement, the home represents one of the best investments in the long run. Pond also believes consumers should focus on tax advantaged investments and strategies, such as contributing to retirement plans and owning a cash value life insurance policy to avoid paying higher taxes. It is also important to excel in a person's chosen field; individuals who are mulling a career change should leverage the experience they already have. It is also important to have the appropriate amount of insurance at a reasonable cost, diversify investments, and make the most of the coming economic revival. "As the economy mends, more opportunities to improve your financial life will be available," Pond predicts. "But whenever you are about to make a money decision, ask yourself if the action will make your financial situation safer.


Start Thinking Now About 2010 Taxes
Associated Press (01/19/10) Feldman, Carole

U.S. tax laws change each year, so people who do their own taxes typically need to use computer programs, says MSN Money's Jeff Schnepper. In 2010, the sales or excise tax deduction for a new car disappears, as do the increased standard deductions for real estate taxes or losses in a federally declared disaster. However, the maximum credit of $8,000 for first-time homebuyers and $6,500 for long-time homeowners who buy a new primary home does not expire until April 30. This means that if a consumer enters into a binding contract by that date, he or she must close on the property by June 30 to be eligible as long as the home is the primary residence and costs $800,000 or less. Individuals who claimed the credit on their 2009 return cannot claim it again in 2010. There is also still time to claim the American opportunity credit for college expenses of up to $2,500 annually by eligible students in the first four years of college. Books, supplies, tuition, and fees are all considered qualified expenses, but they start to phase out at higher incomes. Individual filers who have a company-sponsored retirement plan who earn less than $66,000 may still be eligible to take a deduction for IRA contributions. In addition, people can now convert regular IRAs to Roth IRAs regardless of income, starting in 2010.


3 Ways Your 401k Contributions Will Profit More Than Any Other Investment
NBC 26 (Green Bay) (01/25/10) LaRocca, Fern Alix

The first investing priority for any person is to make the maximum contribution to their 401(k), and not to look elsewhere for short-term profits, writes Fern Alix LaRocca, CFP^® EA. The money that goes into the plan is pre-tax, the investment income is tax-free, and the more you make, the larger your contribution can be. If you invested the same amount in the same investment vehicles outside the 401(k), you would make less than if you made those same investments within the plan. These are three powerful advantages over any other type of investing, making the 401(k) the quickest and best way to build wealth.


Planning Your Estate
CBS News (01/17/10) AuWerter, Stephanie

Many people think that having an estate plan is only for the wealthy, but it is a good idea for people of all income levels to take a few steps to plan what will happen to their assets when they die, writes Stephanie AuWerter, contributing editor for SmartMoney.com. The first step is to write a will, which can be simple or complicated, depending on how large the estate is. Having a durable power of attorney is also important so that you choose who makes financial and health care decisions for you if you become unable to do so, and a plan for long-term care will help cover the very high costs that are not covered by Medicare. Another key step is to make sure beneficiaries for 401(k), IRA, or brokerage and bank accounts are updated, especially after big changes such as marriage, divorce, or childbirth. Finally, converting to a Roth IRA is an excellent way to prepare an estate, because distributions are tax-free and there are no required withdrawals. While the conversion comes with a tax hit, there is currently a tax break that allows individuals to spread the tax over two years.


Should You Tap Credit Unions for College Loans?
SmartMoney (01/13/10) Andriotis, AnnaMaria

The persisting credit crisis has made it difficult for college students to obtain loans from banks; according to FinAid.org, a college financing analyst, only about a dozen major banks still underwrite private student loans. An alternative source of financing is a local credit union. Though they are commonly associated with serving teacher or employee groups, credit unions are branching out into student loans, hoping to snap up some of the business--and profits--bigger banks are leaving behind. The unions are in a strong position to do so, because they avoided risky mortgage practices and now have plenty of cash in their coffers. Borrowing from credit unions is "a perfect way for them to get fairly significant return on an asset class," asserts Jim Briggs, a financial aid consultant with WiseChoice. There are some considerations for this option, however, including: membership requirements; credit score checks; higher variable interest rates; waiting period; and strict terms of repayment.


Avoid the Pitfalls of One-Size-Fits-All Life Insurance Policy
New Jersey Star-Ledger (01/11/10) Jaffe, Charles A.

MarketWatch columnist Charles A. Jaffe calls the one-size-fits-all life insurance policy a foolish investment. "When you buy a one-size-fits-all insurance policy--where the company is agreeing to cover everyone who clicks on an email, calls its phone line, or responds to a marketing pitch--you're going to get a high-cost policy," he warns. "The underwriting and actuarial assumption is that you wouldn't take on this kind of coverage if you could save significant bucks elsewhere; thus, you are treated--and your policy is priced--as if you have significant health risks." Such policies come with no guarantee of a death benefit, unlike policies that remain in place indefinitely, provided premiums continue to be paid. Jaffe says paying the premium actually causes the policy to depreciate each month. Another finding of Jaffe's is that small-dollar coverage tends to be pricey, and there are many companies that refuse to issue $1,000 to $50,000 policies.


Credit Scores: Five Common Questions Answered
Chicago Tribune (01/10/10) Bigda, Carolyn

Recent college graduates tend to be concerned about credit scores, which measure how well a person can handle debt. To establish a credit history and FICO score, a single credit account such as a student loan, mortgage, or credit card must remain open for at least six months and be reported to one of the three main credit bureaus, says Barry Paperno, consumer operations manager for Fair Isaac Corp. Carrying a credit card balance does not improve a person's credit rating. Approximately a third of the FICO score is based on a person's credit utilization, or the portion of a person's credit limit being used. It is best not to charge more than 30 percent of available credit. Closing an old credit card usually does not improve a FICO score, and could actually raise the utilization ratio because less credit is available. Roughly 15 percent of a FICO score is based on the length of a person's credit history, so it would be wise to charge a small sum to a credit card every few months to keep it active and pay off the balance immediately. Checking a credit report does not affect the FICO score, but applying for credit does, so new accounts should be opened sparingly. FICO makes exceptions for mortgage or auto loans, and generally regards multiple applications made within a 45-day period as one. Payments that are 30 days overdue on a bill cause the FICO score to fall by 60 points to 110 points, depending on the credit file, according to FICO.


Not All Financial Planners Made Equal: How to Choose the Right One
Atlanta Journal-Constitution (01/05/10) Cash, Rana

Just as it is ridiculous to visit a podiatrist for chest pains, so it is equally ridiculous to assume that all financial planners are created equal and are equipped to help with anyone's individual needs. "People tend to get a little too carried away about what miracles the adviser might be able to work for them," says Don Whalen, CFP^®. "The adviser's role is to be a good listener and a prudent steward of that person’s money." A good first step to finding the right financial planner is to get recommendations from trusted friends and family. Scott Winkler, CPA and CFP^®, points out, "Everyone's situation is different in terms of the advice they need. Make sure the individual understands your specific needs and can advise you on those needs. Every planner has different strengths and weaknesses." Next, examine the planner's qualifications. A CERTIFIED FINANCIAL PLANNER™ professional is distinguishable from other planners in that they have at least three years experience in the field, have passed a number of rigorous tests, and are required to meet a high ethical standard. Other popular designations are a certified public accountant (CPA), who deals primarily in tax issues but who may also be a personal financial specialist; a chartered retirement planning counselor (CRPC); and a chartered financial consultant (ChFC). Make sure your planner has a professional designation and is not merely passing out a business card that says "Financial Planner." Third, determine whether the planner is paid by a commission based on the client's investment returns; a flat fee or fee-only; or a fee-based payment based on commission and/or a fee. Some planners are paid based on products they sell, so be aware of that. Finally, ask the adviser many questions during the initial meeting and decide whether the adviser is someone you can trust. Most financial professionals will offer a free consultation, and this is the perfect time to ask questions and to be open and honest about your needs.

Financial Alerts

Officials Warn of Possible ID Theft in Census Count
Grand Junction Sentinel (CO) (01/09/10) Shockley, Paul

With recruitment for the 2010 census in full swing, the Better Business Bureau (BBB) warns of the possibility con artists may perpetrate identity theft in the coming months. Authorized census takers will not be collecting Social Security numbers or bank account or credit card information. Nor will they be asking for financial gifts, the BBB said in a press statement. The Census Bureau will contact residents via email, telephone, or in person through a legitimate census counter. The officials going door-to-door "will have a badge, a handheld device, a Census Bureau canvas bag, and a confidentiality notice," the BBB stated.

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